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Mercantilist Myth

In your report during this morning’s 7am hour on Pres. Obama’s effort to “beef up trade enforcement against China,” White House economic advisor Gene Sperling bragged that the allocation of $26 million in new funds toward this effort “is designed to increase our capacity to bring additional trade cases that will level the playing field against countries around the world, including China.”

Translation: Uncle Sam will spend an additional $26 million to shield politically powerful American corporations from having to compete vigorously against foreign rivals.

The myth that gives cover to this plunder is the still-prevalent mercantilist myth that a nation benefits from exports and suffers from imports. The great economist Frank Knight’s lament on this matter remains as true and germane today as it was when he first issued it in 1928: “The man from Mars reading the typical pronouncements of our best financial writers or statesmen could hardly avoid the conclusion that a nation’s prosperity depends upon getting rid of the greatest possible amount of goods and avoiding the receipt of anything tangible in payment for them.”*

* Frank H. Knight, “Historical and Theoretical Issues in the Problem of Modern Capitalism,” Journal of Economics and Business History, Nov. 1928; reprinted in F.H. Knight, On the History and Method of Economics (Chicago: University of Chicago Press, 1956), pp. 89-103; the quotation in the letter is from page 91.